Are Public Investment Efficient in Creating Capital Stocks in Developing Countries?

A Economics Bulletin

Volume 30, Issue 4

Are Public Investment Efficient in Creating Capital Stocks in Developing
Countries?

Florence Arestoff

Université Paris Dauphine, LEDa

Abstract

In many poor countries, the problem is not that governments do not invest, but that these investments do not create
productive capital. So, the cost of public investments does not correspond to the value of the capital stocks. In this
paper, we propose an original non parametric approach to evaluate the efficiency function that links variations (net of
depreciation) of stocks to public investments. We consider four sectors (electricity, telecommunications, roads and
railways) of two Latin American countries (Mexico and Colombia). We show that there is a large discrepancy between
the amount of investments and the value of increases in stocks.

This paper has been produced as part of a World Bank research project "The productivity Effects of Public Capital in Developing Countries"
sponsored by the Powerty Reduction and Economic Management Network (PRM). We thank Santiago Herrera for his support and his
comments on a previous version of this work (World Bank Policy Research Working Paper 3858, March 2006).

Citation: Christophe Hurlin and Florence Arestoff, (2010) ''Are Public Investment Efficient in Creating Capital Stocks in Developing
Countries?'', Economics Bulletin, Vol. 30 no.4 pp. 3177-3187.

Submitted: Dec 07 2009. Published: December 02, 2010.

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